Inflation continues downward trend

Inflation continues downward trend

The excitement usually associated with Christmas and New Year holidays has done little to change the downward trend in prices of goods and services in December as compared to previous months, UBOS revealed that average prices for goods and services were lower by 6.7% in December 2013 compared to the same period in 2012. The change represents a declining trend in the average level of prices in the country that has been observed in recent months.

For instance, average prices of goods and services for November, October and September were lower by 6.8%, 8.1% and 8.4% respectively compared to what they were during the same period in 2012.

According to Vincent Nsubuga, a principle statistician at UBOS, last months prices were significantly lower compared to those of 2012 in the same month that were 14% higher than the previous December of 2011.

On a monthly basis however, prices increased by 12.7% in December 2013 compared to November 2013 of 7.7%

The bumper harvest being experienced in many parts of the country because of a good rainy season has been cited as a major contributor for the downward trend in prices compared to the previous year.

However, the December CPI indicates that agriculture’s good performance is not wholly responsible for lower prices since prices in the non-food category are also falling. For example, the UBOS revealed that Annual Non- Food Inflation declined to 5.7% for the year ending December 2013 compared to the 6.3% recorded for the year ended November 2013.

In the construction sector for instance, prices of building materials like cement and iron sheets have been falling in recent months from as high as Ushs 30,000 a year ago for a 50kg bag of cement to now about Ushs 24,000.

The fall in prices of non-food items as well as in the services sector – which now contributes well over 40% to Uganda’s GDP, should be a source of concern for economic policy makers since it points to the possibility of declining consumer demand, which could be caused by reducing levels of incomes among the population.

UBOS’s CPI for December 2013 reveals that Core inflation fell below Bank of Uganda’s target of 6% for the financial year 2013-2014 from 7.0% in November 2013 to 5.7% in December 2013. time

The recent war in Congo and the ongoing war in South Sudan are likely to keep prices further lower since most of Uganda’s exports have been going to the country currently embroiled in a war.

On a regional basis, the people of Mbarara suffered the highest increases in prices last month compared to the previous year. Prices in Mbarara were 8.1% higher compared to the same period last year up from 7.9% in November 2013. Mbarara was followed by Masaka in registering higher prices.

The continued fall in inflation is likely to trigger a reduction in interest rates by the Bank of Uganda especially through its indicative Central Bank Rate (CBR) to rhyme with its target of keeping core inflation target of 6% in the coming year.